Everyone wants to save money on taxes. Period. Young or old, rich or poor, everyone is interested in keeping more of their money and paying less of it to Uncle Sam.
So, what are some of the legal ways available to save money on taxes?
Mortgage interest is deductible against your taxable income
One of the biggest tax shelters is a home mortgage. I cannot tell you how many clients come to me, proud of the fact that they are mortgage-free. It's such a shame. Although the deduction of state and property taxes is now capped at $10,000 by the tax law, interest paid on mortgages up to $750,000 that are used to acquire or improve your home remains fully deductible. A beautiful thing.
Take advantage of tax deferred retirement accounts
Tax deferred retirement accounts, including 401(K)s and IRAs, are another way to save taxes during your prime working years, when you are likely to be in a relatively high tax bracket. In the 2022 tax year, you can contribute up to $20,500 to a 401(K) pre-tax; an addition $6,500 catch-up contribution is allowed if you are 50 years of age or older.
Explore Roth conversions, when appropriate
Know that, when you reach the age of 72, Uncle Sam will require you to begin to withdraw from these tax deferred accounts. When you do, you will be required to pay taxes on these withdrawals, known as Required Minimum Distributions ("RMDs"). One way to minimize these taxes is to begin to slowly convert portions of your traditional IRAs to a Roth IRA, which is not subject to RMDs. I recommend talking to a financial planner or tax professional when developing such a strategy, And, of course, consider the strategies of the ultra wealthy. Generate income in ways that are less heavily taxed, like capital gains, or real estate, where the IRS allows you to reduce gains by the cost of improvements and depreciation.